Diabolic Deja Vu: Is it food crisis all over again? (Feature)

By Frank Brandmaier Jan 21, 2011, 2:00 GMT

Washington - The dramatic scenes have almost been forgotten: It has been barely three years since looting in Haiti, deadly fights over bread in Egypt, and protests from Vietnam to Bolivia dominated the headlines worldwide.

Sky-high food prices in 2008 had suddenly turned into a global firestorm, including riots and bloodshed.

Now it seems the crisis is back. This time, the venues are Algeria, Tunisia and Jordan. Is it a new global catastrophe over food prices in the making?

It hasn't been for lack of warning. In October, the World Bank reactivated an emergency fund that the development organization had launched in response to the 2008 crisis. The United Nations also sounded the alarm as the Food and Agriculture Organization's (FAO) monthly food price index hit a record high in December.

Earlier this month, the US Agriculture Department also cut its estimates for global harvests of important crops.

'We are entering a danger territory,' Abdolreza Abbassian, senior economist at the FAO, said last week in an interview.

'This may translate into a greater number of people going hungry and street demonstrations,' adds Richard Henry, lead economist at the Agribusiness Department of the International Finance Corporation (IFC), the investment arm of the World Bank. 'If we look at the basic food basket for a family, it is a situation which is not very different from (2008).'

Price surges for food staples have been breathtaking. During last year's second half alone, grain prices skyrocketed by 57 per cent, food oils and fats ran up almost as much and sugar soared 77 per cent.

So far, Asia has remained spared from the protests, largely because the price of rice has yet to join the sharp upward trend seen in other food staples - unlike three years ago.

The world's poor are always hit first and hardest by soaring food prices, because they have to spend a far greater part of their income on what they put on the table.

The shocking result: Prior to the crisis of 2008, an estimated 800 million people lived in hunger, according to the World Bank. Afterwards, their number had swollen to around 1 billion. An estimated 75 per cent of the world's poor live in rural areas.

That the world is again standing on the brink of a global food crisis didn't exactly come out of the blue. Experts identify a diabolical interaction of a number of factors.

According to Richard Henry, stocks of basic foodstuffs have been declining since the beginning of the millennium, with a low point reached in 2007 and 2008: 'Global stocks have been depleted so that any additional crop failure will have a significant impact on prices immediately.'

Three years ago, the crisis originated in Australia. This time, droughts in Russia, Ukraine and Eastern Europe are to blame.

'If you look at 2008 and today, stocks did recover somehow, however not sufficiently to take care of the event that started in Russia and the Ukraine,' Henry explained.

The recent floods in Australia are also starting to have a 'dramatic impact' on the current wheat harvest, said Claire Schaffnit-Chatterjee, an analyst with Deutsche Bank. Dry weather in South America and in the Great Plains region of the United States could even exacerbate the situation, she warned.

'Prices are being driven by growing demand, increasing oil prices and short-term weather patterns which might affect one commodity or another,' explained Atul Mehta, the IFC's director of global manufacturing, agribusiness and services.

The reasons are plain to see: Demand is rising from a world population that is expected to reach 9 billion by 2050. A growing middle class in rising economic giants like India and China are finding meat more affordable, which in turn increases demand for animal feed produced from grains.

As maize harvests are increasingly turned into bio-fuels, supplies also tighten. A rise in speculation in commodities contributes to the roller-coaster ride of food prices. Many also see the Federal Reserve's loose monetary policy and the related weak US dollar as one of the main reasons behind the boom in commodities.

Last but not least: For decades, governments and the private sector alike carelessly neglected investments in the agricultural sector, while studies suggest that growth in agriculture can reduce poverty three times more effectively than growth in other areas.

The World Bank expects high volatility in food prices until at least 2015, but Atul Mehta says there is 'room for optimism.' The remedy is making sure more food is produced by cultivating more land, notably in Latin America and Sub-Saharan Africa.

While productivity of the sector needs to be increased, waste has to be reduced, for example by providing cold storage. Mehta said in India a third of produce is wasted because it rots before it reaches consumers.

But the IFC already sees the tide turning in a favorable way: 'You can see for example a number of governments, including in Sub-Saharan Africa, making increasing efforts to set the right conditions for investments in agriculture,' Mehta said.

The IFC upped its own investments in the sector to 2 billion dollars in 2010, up from 850 million dollars only four years earlier.

But there are wildcards, Mehta warned. He names the hard to measure impact of a changing climate, the availability of water and how the world's thirst for bio-fuels will develop over the next years.

Agriculture economist Henry, who has followed the sector for many years, also displays optimism. Three years ago, there was deep skepticism whether the increasing demand for food by rising powers like China could ever be met.

But now 'by and large, people agree that these resources are available, whether it's water, whether it's land,' the French national said.

'There is no doubt that the world can feed itself. Improving farm productivity requires a lot to happen simultaneously, so that progress does not happen immediately but is usually best measured over decades.'

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